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Thursday, June 30, 2011

Brands matter a great deal in the packaged food industry, but they cannot do all of the heavy lifting. While ConAgra (NYSE:CAG) has suffered in part from its weak brand position (few leading brands across its portfolio), General Mills (NYSE:GIS) is finding that even its stronger brand portfolio does not immunize the company to the difficulties of today's market.

A Challenging Close to the Year
General Mills reported that sales rose 3% for the fiscal fourth quarter, missing the average analyst estimate by a trivial amount. Although the company got a solid boost from price and mix, volume fell 4% in the period. U.S. retail sales were notably weak (down more than 2%), but the company did get a nice boost from its international business. These international sales, boosted in part by a collaboration with Nestle (OTCBB:NSRGY), grew more than 16% for the fiscal Q4.

As the Fourth of July should remind us all, independence is something worth fighting for. Independence means the ability to make your own decisions and live the way you choose to live. When it comes to financial independence, though, many people believe it is only a dream. Here's how to declare your own financial independence day. (To learn more, check out Two Roads: Debt Or Financial Independence?)

What Does "Independent" Mean?
There is no absolute definition for financial independence. The most common sense of the term is that someone has enough wealth to live as they wish for the rest of their life without having to work. This is a foggy definition, though - isn't picking a stock "work"? What about people who own a business and are not involved in day-to-day activities, but still step in for major decisions?

Here's a different definition - financial independence should mean the ability to live more or less as one wants to, within reasonable limits. It may not mean the absolute freedom to never work another day again, but it may mean the ability to quit a bad job, go back to school or start a new business without major sacrifice. Likewise, financial independence should mean the ability to deal with life's ups and downs without scrimping, sacrificing or going into debt.

Wednesday, June 29, 2011

To see the announcement that BJ's Wholesale Club (NYSE:BJ) had agreed to sell itself was only slightly more surprising than Thursday following Wednesday. For starters, this warehouse retailer has been a laggard behind Wal-Mart's (NYSE:WMT) Sam's Club and Costco (Nasdaq:COST) for quite some time and laggards in attractive industries are always appealing takeout candidates. What's more, rumors, speculations, aborted offers and announced intentions have been preparing shareholders for a deal for at least a few years now.

The Deal That BJ's Got
BJ's announced that it will sell itself to private equity parties Leonard Green & Partners and CVC Capital Partners in an all-cash deal worth $2.8 billion. That means $51.25 per share - only about a 7% premium to Tuesday's close, but a 38% premium to the price before LGP took a significant ownership stake and very close to the all-time high for these shares.

Even at this price, though, BJ's is not exactly bowing out with a premium valuation. At only a little more than six times trailing EBITDA, BJ's is going at a valuation close to slow-growing Wal-Mart and Target (NYSE:TGT) and well below rival Costco and a wider universe of value-oriented retailers like Family Dollar (NYSE:FDO) and Dollar General (NYSE:DG). What is interesting, too, is that on a discounted cash flow basis this price does not anticipate much in the way of dramatic improvement - if LGP and CVC can really turn this business around, they will get the vast majority of the benefit.

Foreign exchange, or forex, trading is an increasingly popular market for investors and speculators. The markets are huge and liquid, trading occurs on a 24-hour basis, and there is enormous leverage available to even a small individual trader. Moreover, it is opportunity to trade on the relative fortunes of countries and economies as opposed to the idiosyncrasies of companies.

Despite many attractive characteristics, the foreign exchange market is vast, complicated, and ruthlessly competitive. Major banks, trading houses and funds dominate the market and quickly incorporate any new information into the price and it is all but impossible for a currency trader to know who they are trading with at any particular moment.

Tuesday, June 28, 2011

Foreign exchange, or forex, trading is an increasingly popular option for speculators. Ads boast of "commission-free" trading, 24-hour market access and huge potential gains, and it is easy to set up simulated trading accounts to allow people to practice their trading techniques.With that easy access comes risk. It is true that forex trading is a huge market, but it also true that every single wannabe forex trader is going up against thousands of professions working for major banks and funds. The foreign exchange market is a 24-hour market and there is no exchange – trades take place between individual banks, brokers, fund managers, and other market participants – but 10 firms dominate nearly 75% of the volume.

The last year or two has seen a fairly remarkable rebound in sales, orders and profits for major industrial companies around the world. With a shareholder update Tuesday morning, German conglomerate Siemens (NYSE:SI) has started waving the caution flag. While none of what Siemens said suggests that another global (or even regional) recession is in the making, it does largely confirm that the easy days of the recovery are over and further growth is going to have to come from the more difficult "blocking and tackling" that ultimately separates the long-term winners and losers.

Siemens' Update Short on Details and Long on Influence
Siemens offered an update to investors that essentially revealed that the company expects revenue to be flat sequentially and up from last year, with profits down sequentially and also up from last year. Order growth is slowing, and management believes that most of the tailwind of the economic rebound is now done.

Going into some of the details, Siemens indicated that the health care and renewable energy businesses are underperforming, lighting is challenging, and the industrial markets are still relatively healthy.

It seems a little strange that footwear and athletic apparel maker Nike (NYSE:NKE) never quite gets the same respect or admiration that Coca-Cola (NYSE:KO), Microsoft (Nasdaq:MSFT) or Wal-Mart (NYSE:WMT) get from investors and business historians. After all, Nike started at almost the same time as Wal-Mart and is every bit as global (if not more) in its reach and influence.

Perhaps even more to the point for investors, Nike continues to grow at a pace that most other giant consumer products companies struggle to match. With Nike arguably having room for improvement and expansion in multiple areas, there would be seem to be no immediate cause to think Nike cannot continue to grow for many years to come.

A Strong End to the Fiscal Year
Nike reported that sales rose 14% to close out its fiscal year. In topping even the high end of sales estimates, Nike saw footwear sales growth of 19%, apparel growth of near 8%, and equipment growth of 5%. While sales were notably strong in China and emerging markets (and these markets are collectively as important to Nike as Europe), North America was no slouch at 21% reported growth.

It is easy to get confused and frustrated trying to figure out the housing and homebuilding market these days. A company like Toll Brothers (NYSE:TOL) can seem to be doing a little better, only to see news a few weeks later about dour housing starts or hear disappointing news from Lender Processing Services (NYSE:LPS) about the state of foreclosures.

Adding fuel to the fire is Friday's news from Universal Forest Products (Nasdaq:UFPI) that their traditional peak selling season was disappointing and the lumber market is in tough shape. While bad news at UFPI does not guarantee bad news for Pulte (NYSE:PHM), Lowe's (NYSE:LOW), USG (NYSE:USG) or American Woodmark (Nasdaq:AMWD), it does offer up evidence that the long-hoped for recovery is still waiting to bloom.

When a Peak Becomes a Valley
The period from March to May is supposed to be some of the strongest months in the year for Universal Forest Products, a producer of lumber and various building products. Unfortunately, the company announced last Friday that year-to-date sales were down 9.5% through May, retail sales were down 15% and the lumber market declined for 11 straight weeks during what should have been a strong selling period.

The only constant in the investment world is change. This basic truth has spread even into the bond world - a corner of the market that has the undeserved reputation for being a bit sleepy and conservative. In just a few short years many basic assumptions that underpinned bond investing have gone up in smoke, leaving investors to figure out what the new normal truly will be. (To get you started on the basics of bonds, check out 5 Basic Things To Know About Bonds.)

Sovereign Default - Not Just a Third World Phenomenon
Defaults on sovereign debt are hardly new; Africa and South America have struggled with them for years and they have long been part of the backdrop of emerging market bond investing. What is new, though, is the risk of these defaults spreading into the developed world and shaking up some of the fundamental assumptions about risk in bond investing.

Although there hasn't actually been a sovereign default in Europe yet (Iceland never defaulted on sovereign debt, and Greece and Ireland haven't yet), many investors feel it is only a matter of time. Even allowing for the reality that countries like Greece, Ireland and Spain were never thought to be as financially strong as Germany or Sweden, this is a fairly shocking turn of events. While the Eurozone will likely stay intact throughout this mess, it has clearly shaken investors and should lead them to revisit their basic assumptions about risk in that region.

Monday, June 27, 2011

Foreign exchange, or forex, trading is an increasingly popular market for investors and speculators. The markets are huge and liquid, trading occurs on a 24-hour basis and there is enormous leverage available to even a small individual trader. Moreover, is the forex market presents the opportunity to trade on the relative fortunes of countries and economies as opposed to the idiosyncrasies of companies. (For more, see Forex Leverage: A Double-Edged Sword.)
Despite many attractive characteristics, the foreign exchange market is vast, complicated and ruthlessly competitive. Major banks, trading houses, and funds dominate the market and quickly incorporate any new information into the prices. In fact, just 10 firms control about 75% of foreign exchange volume and it is all but impossible for a currency trader to know who they are trading with at any particular moment.

Looking at Micron's (NYSE:MU) results from Thursday evening, it is pretty clear that the chip market is not healthy. With memory chips filling such a fundamental role in so many devices, it does not seem out of line to say that "as goes memory, so goes chips." While memory has always been a volatile sector, there was not much in the Micron release to suggest that a big turnaround is on the way soon. And yet, with the stock trading at such an unchallenging multiple, it is worth asking if Micron is nevertheless a value today.

A Ragged Fiscal Third QuarterThere was not much in the way of good news in Micron's fiscal third quarter report. Revenue fell 5% on a sequential basis and 7% from last year's level. In truth, there wasn't much strength anywhere. NAND sales fell 5% sequentially (with ASPs down about 5%) and DRAM sales dropped 7% despite a small uptick in price. In terms of operating units, Embedded Solutions and Wireless Solutions were strongest, which is not altogether surprising given the relatively better market for chips in automotive, industrial, server and mobile applications.

Takeover speculation can be a mixed blessing. Sure, it's great to see the price of a stock you own soaring on the idea that another company is about to make a bid (or better yet, start a bidding war). Unfortunately, this kind of speculation can set unrealistic expectations and blind investors to the potential of the company on its own.

Such may be the case for TIBCO (Nasdaq:TIBX). As one of the only small independent middleware companies still standing, there is widespread expectation that the company will get bought out before too much longer. But what if that doesn't happen? While TIBCO is a small company competing with giants like IBM (NYSE:IBM) and Oracle (Nasdaq:ORCL), investors shouldn't just assume that it's "game over" if the company fails to sell out. TIBCO just have reached a tipping point where it could continue to work as an independent company.

Biotech and pharmaceutical investors got another reminder that the FDA can deliver pleasure or pain with the stroke of a pen, and oddly enough Pfizer (NYSE:PFE) was in the middle of all of it. While the FDA granted approval for a tamper/abuse-resistant immediate release formulation of oxycodone developed by Acura Pharmaceuticals (Nasdaq:ACUR) (and Pfizer), the same agency rejected an application for Remoxy - a long-acting abuse-resistant oxycodone formulation that involved Pfizer, Pain Therapeutics (Nasdaq:PTIE) and Durect (Nasdaq:DDRX).

Acura's Long Road to Approval
While Acura's management is no doubt happy to get the FDA's approval on Oxecta, it was not an easy process. The FDA rejected a prior application for a version of the drug that included niacin in June of 2009 and then an FDA advisory panel rejected a resubmitted application in April of 2010. Apparently the third time (this time for the version without the niacin) was the charm, and Acura is now in line to receive a $20 million milestone from Pfizer, and royalties ranging from 5 to 25% of sales.

There is no question that oxycodone abuse is a serious issue. Those inclined to abuse pain medication will take the pills with alcohol or crush them (later to snort or melt and inject) to achieve what's called "dose dumping" - getting all of the effect at once. Odd as it may sound, doctors are increasingly coming under scrutiny for their role in giving prescriptions to drug-seeking patients, and that has made some hesitant to prescribe powerful (but necessary) pain medication like oxycodone. Theoretically, then, there is a big market waiting for a pain drug that cannot be readily manipulated.

The world of pipelines, gas gathering and midstream assets is usually a pretty sleepy place that offers a lot more in terms of income than in headlines and excitement. With at least two bidders now fighting for Southern Union (NYSE:SUG), though, this quiet patch of the income world has gotten a lot more interesting. (To learn more about he oil and gas industry, check out Oil And Gas Industry Primer.)

Williams Companies Brings the Cash
While Southern Union and Energy Transfer Equity (NYSE:ETE) had previously come together on a somewhat convoluted merger agreement, at $33 a share (for Southern Union), Williams Companies (NYSE:WMB) has shaken things up with an all-cash bid of its own that values Southern Union at $39 per share. Now let the squabbling via press release begin!

When Energy Transfer Equity made its original offer, it was a reasonable premium to the recent trading price of Southern Union, but still a rather good bargain for ETE. Making matters worse, it was a convoluted offering - Southern Union shareholders would receive Series B units that would yield at least 8.25%, but there was a somewhat complicated decision tree that could result in shareholders eventually getting cash, ETE common, Energy Transfer Partners (NYSE:ETP) common, or continuing to hold those Series B units. Some of these permutations would give SUG shareholders a tax-free acquisition premium.

Friday, June 24, 2011

There are plenty of valid reasons to take one look at an EMS provider like Jabil Circuit (NYSE:JBL), Flextronics (Nasdaq:FLEX) or Celestica (NYSE:CLS) and not bother again. After all, this is a highly cyclical market where the companies have minimal control over their own revenue, narrow margins and returns on capital that arguably do not cover their cost of capital.

And yet, savvy investors realize that there may be a time and place for almost any stock. With the tech market in the doldrums and several major customers gasping, Jabil should be in rough shape. Oddly enough, the company is doing relatively well and may in fact be worth a look from investors who understand that this would not be a permanent engagement.

Decent Third-Quarter Performance
Third-quarter results at Jabil were not too bad, particularly given the weakness at customers like Research In Motion (Nasdaq:RIMM) and Cisco (Nasdaq:CSCO). Revenue rose 22% from the year-ago level, and 8% from the prior quarter, surpassing the consensus estimate by almost $100 million. Growth was strong in the Enterprise and Infrastructure and Diversified Manufacturing Services units, and those offset weakness in High Velocity Systems.

When it came to light a little while ago that ConAgra (NYSE:CAG) was interested in acquiring Ralcorp (NYSE:RAH) and really focusing on private label food, it made a lot of sense. With another quarter in the books, it is increasingly clear that they may be ConAgra's only real chance of competing - this company just cannot gain much traction in the supermarket and has done little to improve a portfolio of brands that lacks leaders. (For more on supermarket stock, check out Evaluating Grocery Store Stocks.)

A Weak Close to the Fiscal Year
ConAgra's press release boasts of "strong" comparable growth, but I have to wonder what definition of "strong" the company is using. Yes, revenue was up over 5% this quarter and that's not bad for a large food company. What ConAgra management is glossing over, though, is that sales in the year-ago period were down about 5%, so the comp was especially easy. In fact, sales in this quarter were still lower than in 2009, so just exactly how strong does ConAgra think their business is? It is worth noting, though, that this is the first positive comp after four straight negative quarters.

Looking further at the top line, the consumer business saw less than 1% growth as a modest boost from pricing was overwhelmed by a fall in volume. Commercial sales were much stronger, though, and climbed about 14%.

Another quarter has rolled by, and cloud is still a hot topic in the tech world. Recently, though, some of that chatter has turned more negative. With Amazon's (Nasdaq:AMZN) cloud servers apparently being used by the hackers that targeted Sony's (NYSE:SNE) PlayStation network, there's a fresh reminder of some of the potential vulnerabilities to cloud architecture.

How much that matters to Red Hat (NYSE:RHT) right now is not so clear. Red Hat is still in the early days of its evolution into a cloud provider (middleware and virtualization, alongside its enterprise Linux) and even if cloud adoption slows a bit in the short term, it likely does not impact the long-term picture at Red Hat for a while. That said, Red Hat still has some of its own issues to address.

Yet Another Strong Performance at Red Hat
Pardon the pun, but good quarterly reports are becoming a little old hat for this name. Red Hat posted revenue growth of nearly 27% (and up about 8% sequentially), as subscription revenue rose almost 26% and training/service revenue rose more than 30%. Backing up the solid revenue number was 28% growth in billings - suggesting that momentum is still pretty solid. (For more, see Introduction To Momentum Trading.)

For employees stuck in uninspiring cube farms, the office equipment sector may have all the appeal of thumbscrews. For investors, though, there are definite signs of life after several years of recession-induced doldrums. Even though companies are not yet hiring workers in large numbers, it looks as though an equipment refresh cycle has begun, and that could mean better days for shares in companies like Steelcase (NYSE:SCS) and Herman Miller (Nasdaq:MLHR).

A Surprisingly Strong May Quarter
While Steelcase and Herman Miller operate on different fiscal calendars, their quarters nevertheless coincide. What also coincides is surprisingly strong performance, order growth and revenue results well in excess of analyst expectations.

For the quarter Steelcase reported organic revenue growth of 23% and order growth of 25%. To keep this in perspective, though, investors should realize that the revenue for the comparable quarter in 2008 was 29% higher still, so the company has a while to go before regaining prior peak levels. Although Steelcase has seen higher input costs, gross margin was flat and the company reported a major improvement in adjusted operating income.

When Apple (Nasdaq:AAPL) launched the iPhone in 2007, it ushered in a wave of smartphone development, and customers responded by buying millions of the things from Apple, Motorola Mobility (NYSE:MMI), Research In Motion (Nasdaq:RIMM), Samsung, HTC and other vendors. When Apple introduced the iPad in 2010 there was a similar expectation that tablet computers would quickly sweep up similar retail sales.

Curiously, there has been a rather sizable pothole on the way to tablet prosperity. While Apple has indeed seen good demand for the iPad platform, rivals running on Google's (Nasdaq:GOOG) Android platform have not fared nearly so well. The question is, then, whether the tablet market can still live up to initial expectations or whether it will prove to be a step too far for the mass retail segment. (For related reading, see The 4 R's Of Investing In Retail.)

Few Successes, Ample Disappointments
Apart from Apple and Samsung, few tablet manufacturers have seen demand meet their expectations. RIM shipped just 500,000 units in the first quarter, decided to delay a 4G version until the fall, and supposedly cut internal sales expectations for the PlayBook in the second quarter to one-third of the initial level (800,000 to 900,000 units versus 2.4 million).

Thursday, June 23, 2011

Foreign exchange (forex) trading is an increasingly popular market for investors and speculators. The markets are huge and liquid; trading occurs on a 24-hour basis, and there is enormous leverage inherent in the system. Moreover, it is an opportunity to trade on the relative fortunes of countries and economies, as opposed to the idiosyncrasies of companies.

Despite many attractive characteristics, the foreign exchange market is vast, complicated and ruthlessly competitive. Major banks, trading houses and funds dominate the market, and quickly incorporate any new information into the prices.

Foreign exchange is not a market for the unprepared or ignorant. To effectively trade foreign currencies on a fundamental basis, traders must be knowledgeable when it comes to the seven major currencies. This knowledge should include not only the current economic stats for a country, but also the underpinnings of the respective economies and the special factors that can influence the currencies. (For more, see Top 8 Most Tradable Currencies.)

Although Dutch conglomerate Philips (NYSE:PHG) has bounced off the late 2008/early 2009 bottom in the stock, it has been many years since Philips was really a credible candidate for a long-term investor. Once an unquestioned leader in lighting and a strong competitor in consumer electronics, Philips has fallen victim to the bloat and malaise that seems to affect almost every conglomerate sooner or later. The question for investors now, though, is how long they are willing to wait for real signs of a new way of doing business at this company.

Weak Guidance Hamstrings the Stock
Philips surprised the market by preannouncing a disappointing second quarter. Management was sparse on details, but sales in the core lighting business only grew in the low single digits, while sales in consumer electronics have fallen from last year's level on weakness in Europe and a restructuring of the TV business.

Oddly, the company said nothing about the health care business, which is a substantial factor in sales and profits. That said, based on the performance at competitors like General Electric (NYSE:GE), Siemens (NYSE:SI), Varian (NYSE:VAR), Hologic (Nasdaq:HOLX) and ZOLL (Nasdaq:ZOLL), it would seem credible that Philips had a good, but probably not spectacular, quarter.

There are at least two different ways to assess Adobe's (Nasdaq:ADBE) performance over the past 16 years. In terms of execution of its business plan, Adobe has been a breakaway success - products like Photoshop and Acrobat dominate their niches to the point were "Photoshopping" and "PDFing" are verbs that almost everyone recognizes.

On the other hand, Adobe has not been such a runaway success as a stock. True, the stock is up about 400% over the past 16 years, but that is not all that impressive relative to Oracle (Nasdaq:ORCL) or Intuit (Nasdaq:INTU) and basically matches Microsoft's (Nasdaq:MSFT) performance - even though Adobe should have the advantage of being a more nimble company with more opportunities for growth.

The question for investors, then, is perhaps not so much whether Adobe can maintain its dominance and expand into new territories like smartphones and tablets, but whether investors will reward that growth.

Wednesday, June 22, 2011

According to a recent survey released by Prudential Financial, fear and disillusionment have once again grabbed hold of many individual investors. Nearly 60% of the survey respondents said that they had "lost faith" in the stock market, while 44% said that they are unlikely to ever put more money in the stock market again. (Why have stocks historically produced higher returns than bonds? It's all a matter of risk. Check out Why Stocks Outperform Bonds.)

Those are sobering statistics, but not terribly surprising. When times are good and the markets are running hot, people feel great about the markets and throw money at stocks. When times are bad, people swear off the markets and promise "never again" - until the next big thing dominates the headlines again.

For those who don't wish to ride that pendulum between frenzy and despondency, there are several solid reasons not to fear the market.

Capital One (NYSE:COF) has seemingly always been on the hunt for more loanable funds, and the company has taken a big swing with its acquisition of ING Groep's (NYSE:ING) ING Direct. While there is no question that this acquisition will give Capital One a much larger deposit base, it is not so obvious that the company will turn this into a value-additive deal. (For more on how this deal and others are valued, check out Analyzing An Acquisition Announcement.)

Terms of the Deal
Capital One agreed to pay $9 billion for ING's U.S. online banking operations, with $6.2 billion of that coming in the form of cash. With the remainder in stock, ING will be a major shareholder of Capital One. At close to 1 times tangible book value, it may not seem like Capital One is paying all that much, but investors should remember that ING was a highly motivated seller - divesting ING Direct was a requirement as part of the company's bailout.

What Capital One Is Getting
With this deal, Capital One adds about $80 billion in deposits to its franchise and returns to the mortgage business. While Capital One already had its own online bank, ING Direct is arguably the best-known operator of online savings accounts and may enjoy some brand value and distinction. Unfortunately for Capital One, the branch-free model at ING Direct is not quite as profitable as some might imagine and pre-provision earnings of $630 million is not a compelling return on capital. (To help you determine if this acquisition is going to be a success, read What Makes An M&A Deal Work?)

When former high-fliers come down hard, there is often a thriving trade in M&A speculations. Maybe it feeds on the hope of bruised shareholders that they'll get some of the money back, or the hopes that the shareholders in the rumored acquirers will get the chance to buy crumbled dollar bills at a big discount. Whatever the motivation, the troubles at Research In Motion (Nasdaq:RIMM) have now put this stock on the M&A hot stove.

A Long and Fast Fall From Grace

Three years ago, RIM shares cracked $140 and the company's devices were so popular they were often referred to as "Crackberries." Then along came Apple (Nasdaq:AAPL) and its iPhone, Google's (Nasdaq:GOOG) Android platform, and a host of phones from improbable contenders like Motorola Mobility (NYSE:MMI), HTC, and Samsung, often powered by chip architecture licensed from ARM Holdings (Nasdaq:ARMH).

Since then, RIM has been losing market share like water through a sieve, mirroring the decline in Nokia (NYSE:NOK). Making matters worse, the company's line-up is aging, there aren't many exciting models in the near-term pipeline, and the company seems to be talking a little too much about its offerings for the lower-end of the market. While chip investors eagerly wait to tear apart new models from Apple or try to find hidden meanings in press releases and speeches, nobody seems to care about who Research In Motion is building into their phones - perhaps the best sign of all that investors have written off RIM. (For related reading, see How To Profit From Debt Securities In Failing Companies.)

The past few years have been a rough stretch for pharmaceutical companies, as patent expirations and a lack of exciting new products have led to lower revenue growth, rampant mergers and extensive restructuring. With a relatively manageable patent cliff and some interesting new products, Merck (NYSE:MRK) may be worth a second look from value-oriented investors.

A Solid Franchise in Cardiology and Inflammatory Disease
Like virtually all of the major pharmaceutical companies, Merck sells a large number of branded pharmaceuticals but focuses most of its attention on a few particular segments. For Merck those areas of focus include cardiology (with drugs like Zetia and Vytorin), immunology (Singular and Remicade) and diabetes (Januvia and Janumet).

Although Merck has had some issues developing its own late-stage pipeline, the acquisition of Schering-Plough helped address some of those issues. At the same time, the company has restructured its operations and in doing so it has given its salesforce the ability to act with more independence - a move that could pay dividends in the long run.

Tuesday, June 21, 2011

To say that the United States has some strange corporate tax rules would a bit like saying that Michael Jordan knew how to play a little basketball. One of the byproducts of the byzantine U.S. tax structure is that many corporations are forced to keep large amounts of cash in their overseas subsidiaries instead of bringing it home and paying taxes on it to the U.S. Treasury. With nearly $1.4 trillion in U.S. corporate earnings sitting overseas, investors may begin to hear more debate about whether Congress should, or will, pass some sort of tax holiday bill to allow corporations to bring this money home.

The Last Holiday Was a Mixed BlessingOne of the arguments for tax holidays is that U.S. corporations can repatriate their cash and use it to expand their businesses and hire workers. It's a nice theory, but it does not always (or perhaps even "often") work that way. A similar repatriation holiday was passed in 2004 under the Bush administration, inside the American Jobs Creation Act of 2004. While 800 companies took advantage in 2004 and 2005, the National Bureau of Economic Research (a non-partisan non-profit economics research organization) reports that 92% of the money repatriated was paid out as dividends and stock buybacks. (Read about how these strategies saved even more taxes; check out A Breakdown Of Stock Buybacks.)

Foreign exchange, or forex, trading is an increasingly popular option for speculators. Ads boast of "commission-free" trading, 24-hour market access and huge potential gains, and it is easy to set up simulated trading accounts to allow people to practice their trading techniques. (For more, see Forex Trading: A Beginner's Guide.)

With that easy access comes risk. It is true that forex trading is a huge market, but it's also true that every single wannabe forex trader is going up against thousands of professionals working for major banks and funds. The foreign exchange market is a 24-hour market and there is no centralized exchange – trades take place between individual banks, brokers, fund managers and other market participants – but 10 firms dominate nearly 75% of the volume.

There have been some concerning signs recently that the economic recovery is petering out. Railroad traffic is softening and industrial supply giant Grainger (NYSE:GWW) has been reporting decelerating growth in its U.S. orders. With recent data points from leading mini-mills and a major European industrial company, it looks as though the second quarter saw a definite slowdown, and growth for the rest of the year is up in the air.

Spotty Demand for Steel?

Last week saw earnings preannouncements from both Nucor (NYSE:NUE) and Steel Dynamics (Nasdaq:STLD). Nucor was relatively upbeat in the text of its release, talking about how prices for finished steel have caught up with rising material costs. That said, things have not improved enough - the midpoint of Nucor's guidance was about 10 cents (or 12%) lower than the prior average analyst estimate.

The report from Steel Dynamics was less rosy (and more detailed). Steel Dynamics has seen lower recycling profits as the cost of scrap copper and steel have risen. Worse yet, steel orders were down 25% in April before starting to improve in May.

For a well-run bank, PNC (NYSE:PNC) is not shy about taking on other banks' troubles in the name of market expansion. Having expanded into the Midwest and Florida with the acquisition of National City in 2008, PNC is moving into the Southeast region of the U.S. with the acquisition of Royal Bank of Canada's (NYSE:RY) U.S. banking operations. While a curious deal in some respects, it could represent a toe-hold for a firm quickly become a super-regional player.

Terms of the DealPNC will be paying $3.45 billion to Royal Bank of Canada for its U.S. operations, a regional bank with $25 billion in assets and 424 branches in Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia. PNC will have the option of paying up to $1 billion of the deal price in its own stock, a move that would prospectively represent about 3% of the bank's stock. To raise the cash for the deal, PNC will likely need to issue instruments like debt and trust preferred securities (a form of preferred stock).

Monday, June 20, 2011

Protein stocks can be some of the most irritating stocks for an individual to consider. So much of what determines success at companies like Smithfield (NYSE:SFD), Tyson (NYSE:TSN), and Pilgrim's Pride (NYSE:PPC) is out of their control and all but impossible to predict. What's more, successful trading often demands selling when things look great and buying when things are terrible - old advice to be sure, but nevertheless still hard for many investors to follow.

With Smithfield Foods posting its first full-year profit in a few years, and the stock up nicely relative to the S&P 500 over the last two years, investors might be wise to question whether this is a stock they want to hold for the full cycle or whether it may be time to move on to greener pastures. While protein consumption seems to be on an inexorable climb around the world, agriculture is still unpredictable and protein stocks are still tough candidates for long-term sleep-well-at-night investing.

A Good End To The Year

Smithfield Foods certainly brought home some good results for the end of its fiscal year. Revenue rose more than 7%, as Packaged Meat pushed Pork Processing to a double-digit increase and offset weaker performance in Hog Production. One potential concern comes from the volume figures - across the board volume was weak, as fresh pork volume dropped 9%, packaged meat volume fell 2%, and hog production volume fell 9%.

Investors had many good reasons to be enthusiastic about Silgan's (Nasdaq:SLGN) announced merger with Graham Packaging (NYSE:GRM). Not only was the company in place to benefit from significant operating synergies and tax benefits, Graham would have given the company an invaluable plastics packaging business - an increasingly important consideration in a world that seems to be moving away from Silgan's traditional metal packaging.

Unfortunately, Silgan was not the only company to see value in Graham's assets. New Zealand-based Reynolds Group Holdings came in near the eleventh hour and made a counter-offer that Graham's board could not refuse.

The New Deal
Graham informed Silgan and the market that another bidder had emerged and offered $25 in cash for each share of Graham Packaging. That was a significant improvement over the deal Silgan offered - a deal that had been worth about $19.56 at the time of the agreement, but one that incorporated a significant Silgan equity component (meaning that the actual deal value changed every day with Silgan's share price). On a fair like-for-like basis and considering Silgan's share price, Reynolds' offer was ultimately about 14% better and had the added benefit of being an all-cash deal.

Not many retailers flirt with utter ruin and make it back again, but Pier 1 (NYSE:PIR) continues to offer a lesson in the merits of a good turnaround story. Instead of going the way of other failed retailers like Linens N Things or Circuit City, Pier 1 returned to its roots, listened to its customers and made changes that went beyond simply cutting prices or offering exceptional sales promotions. While the going will get tougher for this eclectic housewares retailer, investors need not be in a hurry to abandon ship.

A Very Encouraging Fiscal First Quarter
Pier 1 simply delivered the goods this quarter. Revenue rose over 9% and the company delivered comp-store growth of over 10%. Not only does that make it three of the last four quarters where Pier 1 has produced a double-digit comp, but that is also on top of a better-than 14% comp number last year. Granted, Pier 1 did go ever so far down the rabbit hole during its declining years, but these kinds of strong-on-strong quarters amidst a so-so retail environment are encouraging all the same.

The company also continues to deliver solid operating leverage. Gross margin rose nearly three full points, with core merchandise margins up more than one point. Operating expenses were also kept in check, and the company delivered 140% higher operating income as a result and operating margin more than doubled. Better still, it would look as though the company could have still more juice in its margins - Williams-Sonoma (NYSE:WSM) and Bed, Bath and Beyond (Nasdaq:BBBY) certainly are not perfect comps to Pier 1, but both would suggest that Pier 1 has not maxed out its margin improvement possibilities.

Friday, June 17, 2011

I'm sure that even a brief review of my archive will show that I write often and on a wide range of subjects. Even though my note-taking and archiving is good enough (or good enough to get me this far), I'm always looking for ways to improve.

I've heard people talk about Evernote, so I was curious if anyone out there has had any experience positive or negative.

Nothing lasts forever, including the effectiveness of some investment strategies. True, some basic ideas like "buy the stocks of high-quality companies when they're trading cheaply" seem to operate with no expiration date, but other strategies seem to work only for a while, before reverting back to market-average or worse returns. Let us examine some of the strategies that may be on the way out. (Avoid taking premature profits or running losses by setting appropriate exit points, see A Look At Exit Strategies.)

The Safe Haven
Whenever the markets turn rough and some sector happens to go up (or go down less), investors and commentators are more than happy to anoint a new "safe haven" for investors. Gold has been a safe haven at many points in history. Bonds have been safe havens, as have dividend-paying stocks, utility stocks, consumer goods stocks and so on. (For related reading, see The Advantages Of Bonds.)

For example, healthcare was supposed to be a safe haven. Yet, during the recession in the late 2000s healthcare underperformed as pharmaceutical companies suffered from patent cliffs and medical device companies bore the brunt of lower patient visits and tight hospital capital budgets.

Will Ferrell's Ricky Bobby may not have been the smartest character in movie history, but perhaps he had a point when he said, "If you ain't first, you're last." At the very least, Johnson & Johnson (NYSE:JNJ) seems to think there's wisdom there, as the company announced on Wednesday it would effectively abandon the coronary stent business.

If a Dead Tree Falls in the Forest ...
At first blush, Johnson & Johnson made a surprising announcement on Wednesday morning, telling its shareholders that it had decided to end development of its next-generation Nevo drug-coated coronary stent, and wind down production and sale of the older Cypher stent by the end of the year.

Thinking through it a bit more, though, it is not so surprising. JNJ may have been the early winner in drug-coated stents, but the company's market share was subsequently pummeled by better mousetraps from Boston Scientific (NYSE:BSX), Abbott (NYSE:ABT) and Medtronic (NYSE:MDT) (to a much lesser extent). Curiously, that is quite similar to what happened to JNJ so many years ago when bare metal stents were new - JNJ jumped to an early lead, but failed to innovate and became an also-ran.

Wednesday, June 15, 2011

Horror movies have a lot to teach us. That noise is never "just the cat," it's a bad idea to go into the woods at night wearing only underwear, and tape recordings of demonic incantations tend to spoil a weekend in the woods. But perhaps most important is this lesson - nothing is ever truly dead so long as someone can figure out how to make money from it.

To that end, perhaps the death of the PC has been exaggerated. With encouraging results from Best Buy (NYSE:BBY) and stronger than expected guidance from Hutchinson Technology (Nasdaq:HTCH) - a manufacturer of suspension assemblies for hard-disk drives - it seems like their may be life yet in the market for desktops and laptops.
Best Buy's Earnings - Maybe Not So Good for PCsBest Buy certainly had a good quarter, and the market responded accordingly. Whether it was great news for the PC market, though, is not so clear. There is no question that sales growth from computing and mobile phones was the leader for the company, but the problem lies in the details. Mobile phones from HTC, Motorola (NYSE:MMI) and the like continue to be hot sellers, as do tablets from Samsung, Research In Motion (Nasdaq:RIMM) and so on. Unfortunately, then, while Best Buy management's indicated that notebook sales had improved, they aren't necessarily strong.

Most workers go their entire career with only a vague sense of how much a company values their work. Ron Johnson isn't most workers, though, as investors boosted the value of J.C. Penney (NYSE:JCP) shares by more than $1 billion on word that he had agreed to leave Apple (Nasdaq:AAPL) and join this established mall-based retailer as its soon-to-be CEO.

J.C. Penney Recruits a Proven Winner
While at Apple, Ron Johnson held the title of Senior Vice President of Retail, but what he really did was oversee the opening of more than 300 Apple stores that now produce upwards of $10 billion in sales. Almost every analyst now views the Apple store concept as a key part of its sales strategy, a major brand reinforcement, and a savvy move by a company always thinking a few steps ahead. (For more, see CEO Savvy And Stock's Success Go Hand In Hand.)

Of course, it wasn't always like this - at the time of the launch, it was seen as ridiculous, a sign of Steve Jobs' hubris and a mistake that would quickly be pounced upon by the likes of Best Buy (NYSE:BBY), Circuit City and Dell (Nasdaq:DELL). While it is easy to dismiss the success of Apple's retail outlets as just being dragged in the wake of super-popular iPods, iPhones, and iPods, that misses the mark. Plenty of companies failed in their attempts to build stores around hot products and Apple has leveraged its store base into a force multiplier for its brand and its business. (For related reading, check out Best Buy Has A Number Of Profit Levers To Pull)

Tuesday, June 14, 2011

Normally the decision of Wendy's/Arby's Group (NYSE:WEN) to sell off Arby's to a private investment group would not interest me all that much. After all, it's a struggling (and not notably well-run) business selling off a non-core asset that itself has seemingly spent more years struggling than thriving since its founding.

And yet, there is something interesting about this story that investors in the restaurant sector probably should not ignore. Not only is there is a lesson about the durability of brands, but also just how difficult it is to crack into the rarefied air of those chains that really matter.

The Long Strange Trip of Arby's
There are more than a few weird stories in the annals of restaurants - from flatulent tortoises at Rainforest Cafe (now owned by Landry's), weird animatronics, lawsuits and bankruptcies at CEC Entertainment's (NYSE:CEC) Chuck E. Cheese's, and the mass-market success of Hooters. Nevertheless, Arby's still manages to stand out.

Times are still tough for most health care companies as patient visits are down due to the economy and few new technologies are really exciting the markets. Even with that less-than-stellar backdrop, AngioDynamics (Nasdaq:ANGO) has been in a bit of a malaise; financial performance hasn't been great (sales have only grown about 10% in over two year's time) and the stock has languished relative to competing names like Bard (NYSE:BCR), Covidien (NYSE:COV) and Vascular Solutions (Nasdaq:VASC).

Well, the board has apparently had enough. Along with the company's announcement Monday evening that fiscal fourth quarter performance would be once again lacking, the company announced the immediate resignation of the CEO in language that made it seem pretty clear that the board was none too happy with the lack of performance during his tenure. While this sudden shake-up is no doubt going to disturb the business and delay the sort of accretive acquisitions that analysts and investors have been waiting for, it is a move that could eventually pay off for patient shareholders. (For related reading, see CEO Savy And Stock's Success Go Hand In Hand.)

The Fiscal Fourth Quarter Was "Blah" at Best
The last three quarters have not been very impressive at AngioDynamics, bumping along with no more than 5% year-on-year growth. Fiscal fourth quarter results are continuing that unhappy trend, as the company announced that sales would be below initial guidance of $57.5 million to $60.5 million and instead were down more than 6% from last year to $56.4 million. Of that, oncology showed some decent growth at 11% (oncology has been the only major growth driver for a while), while vascular sales fell 13%.

Monday, June 13, 2011

Traditional value investors probably didn't like Lululemon Athletica (Nasdaq:LULU) before Friday's earnings report, and they are not likely to appreciate it any more afterward. So, for those who think the secret to successful stockpicking is in targeting single-digit EV/EBITDA ratios, sub-1.0 PEG ratios, or similar formulas, Lululemon just is not going to work for them.

For growth investors, though, this is a name that just keeps delivering the goods. There will be a day of reckoning, a day when the growth disappoints and investors suddenly realize that the low-hanging fruit has been plucked, but that day isn't today and it does not look like it's going to be tomorrow either. In the meantime, aggressive investors may continue to benefit from one of the most dynamic stories in retail.

A Strong Start to the Fiscal Year
Lululemon delivered 35% revenue in the fiscal first quarter, with comp-store sales up 16% in constant dollar terms. Few retailers are approaching this sort of growth these days. That said, it looks like maybe Wall Street has caught up to the name a bit - the company did surpass the average analyst estimate, but not by much and the company definitely did not beat the highest end of the range.

I've been thinking (and writing) for a little while now that several footwear stocks just look too cheap relative to even modest growth expectations. Apparently VF Corp (NYSE:VFC), one of the largest apparel makers in the world, agrees. Before the open of trading, VF Corp announced that it was acquiring outdoor footwear maker Timberland (NYSE:TBL) in a cash deal worth roughly $2 billion.

For VF Corp, this is an interesting expansion into new territory. For Timberland shareholders, it is a bittersweet end for a company that has not only been run well, but has frequently been lauded by the ethical investing crowd for its policies and philosophies. There's even something here for investors with no direct stake in either company - perhaps it is at least partial validation that footwear companies have traded too low in this latest market pullback.

The Deal to Come
Assuming that all of the necessary "i's" are dotted and "t's" crossed, VF Corp will acquire Timberland for $43 per share in cash. That represents a premium of 43% to Friday's closing price, a little less than $3 from the all-time high for the stock (set just back in late April, prior to a major fall due to an earning miss), and pretty much the full value for the shares.

Friday, June 10, 2011

Gen-Probe (Nasdaq:GPRO) shareholders enjoyed a nice pop in late April when this diagnostics company announced that it was considering a sale. Those easy gains proved short-lived, though, as the stock gave up a lot of that jump when rumors started spreading in early June that the sale process had not been going well and there was only one interested party still in the bidding. (To help you determine if a stock is popping or if the entire market is moving, read Gauging The Strength Of A Market Move.)

Missing the quick and low-risk payday of a buyout would certainly be disappointing to some investors, but shareholders should not be too worried about this turn of events. While it would be discouraging to consider the idea that other companies do not see a lot of must-have value in Gen-Probe's business, there are other interpretations available. All in all, it may prove to be the case that life sciences companies look back on this opportunity with regret and shareholders ultimately benefit from the ongoing independence of Gen-Probe.

With a sour stock market since May, it seems like investors have already placed their bets on a slower economy. Now it increasingly looks like the data is validating that position. Payroll figures from Automatic Data Processing (NYSE:ADP) are pointing to an iffy job market, banks like Wells Fargo (NYSE:WFC) aren't upping their loans (and are struggling to get rid of bank-owned houses), metrics like the PMI have weakened, and now rail traffic has slowed.

The May edition of Rail Time Indicatorsfrom the Association of American Railroads shows that carload traffic in the U.S. grew just 0.5% on a year-over-year basis and was flat with April's traffic level. Intermodal is still quite strong (up 7.5% annually and almost 1% sequentially) and came very close to setting a new record.

Depth and Breadth a Concern
During the fat months of the traffic rebound, it was common to see every (or nearly every) rail category growing. Now that has thinned down to a point where fewer than half of the categories are growing. So while it is true that carloads ex-coal were up over 2% and ex-coal and grain were up 0.4%, the strength of the recovery has tapered off significantly.

Thursday, June 9, 2011

These are good days for truck makers as the market is enjoying a sharp recovery out of the depths of the recession. However, they are not equally good days for all players. While PACCAR (Nasdaq:PCAR), Volvo (Nasdaq:VOLVY.PK) and Daimler (Nasdaq:DDAIY.PK) are all enjoying good growth and share gains in the North American truck market, Navistar (NYSE:NAV) is the unfortunate source of that market share growth. While Navistar is showing some progress on the top line, investors have good reasons to be concerned about the company's market position and its decision to stick with its own engine designs.

Mixed Fiscal Q2 Performance
Navistar's performance in the second quarter was pretty mixed. True, the company did post revenue growth of 22% (on 17% shipment growth), but the company again seems to be leaking share to its rivals. Operating performance was more encouraging to a point - gross margin slid a bit (down 70 basis points), but operating income more than doubled from the year-ago level. Even so, this was weaker than most analysts had projected.

Change just for the sake of change is a often a really bad idea, as is changing up a successful business plan. And yet, it looks as though a major shift in the business plan has been just the ticket for Oxford Industries (NYSE:OXM), as the company seems to be reaping better margins and a better valuation as it has shifted away from its traditional private label apparel manufacturing business.

A Decent Beginning to the Fiscal Year

Oxford got its fiscal year off to a solid state. Revenue rose 27% on a reported basis and was more or less in line with the average analyst expectation. Revenue growth was fueled by the inclusion of sales from the Lilly Pulitzer business that Oxford acquired roughly six months ago and was therefore not part of year-ago sales. The inclusion of this revenue was responsible for two-thirds of the company's reported revenue growth, though the Tommy Bahama business was up nearly 13%. Unfortunately, the turnaround in the Ben Sherman business line continues to falter and revenue was down a further 13%.

Wednesday, June 8, 2011

Not long after Rock-Tenn (NYSE:RKT) finished its deal for Smurft-Stone, International Paper (NYSE:IP) has decided to make its own play for further consolidation in the packaging business. Late Monday, IP announced that it had launched a hostile offer for Temple-Inland (NYSE:TIN), but Temple-Inland quickly shot down the offer and implemented a poison pill. What remains to be seen now is whether IP can raise the stakes high enough to either persuade the board to change its mind or compel Temple-Inland's own shareholders to rise up and demand approval of the deal.

The Deal
IP surprised the market with a $30.60 cash bid for Temple-Inland, a price about 46% above the company's prior value. If the deal happens, IP would pick up Temple-Inland's 4 million tons of containerboard capacity, over 2 billion square feet in gypsum wallboard capacity, and significant capacity in other building products like lumber and particleboard. Not only would the deal make the combined company a force in containerboard (with about 39% share) with all the attendant synergies of scale, but it would move IP further into the building products sector. For more, see Smurfit Stone Emerges From The Dead.)

Doth Temple-Inland Protest Too Much?
Poring over the "he said, he said" of the dueling press releases, it seems pretty clear that IP approached Temple-Inland and that Temple-Inland turned them down cold (a unanimous board vote against the $30.60 deal). Of course, as is part and parcel of such rejections, Temple-Inland loaded its response with mock indignation that IP would dare offer such a low price, called the deal opportunistic, complained that IP's comparables are unfair and so on. In other words, standard boilerplate language for a rejection.

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I started this blog as a way of archiving my writing for sites like Investopedia, as well as posting some thoughts on the markets, stocks, or whatever else strikes my fancy.
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You can reach me at tuonela (dot) fool (at) gmail (dot) com

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This blog represents the opinions and views of its author.

Information is taken from sources believed to be reliable but no warranty or guarantee is made with respect to accuracy.

Investing involves risk and requires proper due diligence. In no way should a reader should presume this blog represents personalized financial advice or is a substitute for proper due diligence. The author expects you to be enough of a grown-up to realize this.